First created as a legal tender in the year 760 AD, the British pound (GBP) is the oldest currency that is still in use in the world today. It’s issued by the Bank of England and has been the official currency of the United Kingdom since 1707 when England and Scotland united to form a single country.

Apart from the UK, the currency is also used as the official currency of the British Overseas Territories of South Georgia, the British Antarctic Territory, and the South Sandwich Islands, as well as the U.K. crown dependencies the Isle of Man and the Channel Islands.

The British pound futures is the fourth most-traded currency futures in the foreign exchange futures market, accounting for about 13 percent of the daily trading volume. Being one of the highest-valued currencies among the major global economies, the GBP is the third most-held reserve currency in the world.

British Pound Futures Contract Specifications
Symbol
BP
Exchange
CME
Tick Size
$6.25
Contract Size
62,500 British Pounds
Contract Months
Mar, Jun, Sep, Dec
Trading Hours
Monday – Friday: 5:00pm – 4:00pm CT the next day
Settlement
Deliverable
Last Trading Day
The second business day immediately preceding the third Wednesday of the contract month

 

What Do British Pound Futures Mean?

The British pound futures is a futures contract in which the underlying asset is the British pound, and the pricing is based on the expected future exchange rate of the British pound to the U.S. dollar. Thus, the British pound futures is a tradable contract to receive or deliver the specified amount of GBP on a future date, at an already agreed exchange rate.

Just like all other futures contracts, the British pound futures trade on the futures exchanges and are standardized. The fact that the GBP futures trade on the exchange is one of the features that distinguish it from the GBP/USD forex market which operates over the counter. The currency futures market is well regulated compared to the spot forex market, where the broker can trade against the trader.

As with other futures contracts, the British pound futures contracts are leveraged instruments. So, a trader only needs to deposit a portion of the total worth of the contract. The minimum amount a trader needs to carry a contract is known as the margin, and the value varies with the exchanges, market conditions, expiration of the contract, and the type of contract (full contract or micro contract).

At the end of every trading day, the profits and losses made on that day are credited accordingly to the traders’ accounts. Traders whose accounts are falling below the maintenance margin are required to top up their accounts to be able to keep their contracts.

All you need to start trading the British pound futures is to create an account with the exchange through your futures broker and deposit the required margin. Since it is a leveraged instrument, you need not have the full dollar worth of the contract to start. Be cautious about futures trading though — while you can easily make money, you can also lose more than you invested.

Why Trade the British Pound Futures

There are different reasons traders play the British pound futures market. These are some of them:

Speculation: Most traders in the currency futures market are in it for speculation, and the British pound futures is not an exception.

Hedging: The British pound futures are usually used as a risk management tool by investors and fund managers who are exposed to exchange rate risks.

Arbitrage trading: Some traders simultaneously buy and sell the British pound contract on different platforms to benefit from any imbalance in prices.

How the British Pound Futures Trade

The British pound futures contracts trade on the Chicago Mercantile Exchange (CME) Group and the Intercontinental Exchange. Through their various electronic trading platforms, the contract can be traded from any part of the world Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, with a one-hour break each day.

One British pound futures full contract, on the CME platform, is equivalent to 62,500 British pound sterling. At an exchange rate of 1.35, that will be worth about $84,375. The price quotation is in U.S. dollars per pound to four decimal places; the minimum price fluctuation is as follows:

  • Outright fluctuation — $0.0001 per GBP increments or $6.25 per contract
  • Consecutive months spread — $0.00001 per GBP or $0.625 per contract (only on the CME Globex platform)
  • All other spread combinations — $0.00005 per GBP or $3.125 per contract

Apart from the full contract, the CME also offers micro contracts on the British pounds, which is worth 6,250 British pounds. For the full contracts, the CME listed contracts for the first three consecutive months and 20 months in the March quarterly cycle (March, June, September, and December).

Trading terminates at 9:16 a.m. CT on the second business day immediately preceding the third Wednesday of the contract month (usually Monday). If the stated date for termination is a bank holiday in Chicago or New York City, then, trading shall terminate on the next preceding business day common to Chicago and New York City banks and the Exchange.

At expiration, the contract is settled by physical delivery of the British pounds, which is usually done on the third Wednesday of the expiring month. If that day is a bank holiday in either Chicago, or New York City, or is not a business day in the country of delivery, the delivery shall then be made on the next day which is a business day in the country of delivery and is not a bank holiday in Chicago or New York City.

British Pound Trading Strategies

British Pound Trading Strategy

British Pound Trading Strategy

Here at The Robust Trader, we trade british pound trading strategies, and believe that it’s a great market to add to your portfolio to decrease drawdown and increase profit.

However, finding a trading strategy on the British pound futures market may be a little more challenging than on other, easier markets such as Crude Oil. However, if you spend some time on it, you’ll eventually find something that’s worth trading!

For those who are interested in receiving trading edges for various markets, we recommend that you have a look at our edge membership!

British Pound Seasonality

Here is a seasonal chart of the British pound futures market.

British Pound Seasonality

British Pound Seasonality

Source: MRCI.com

Factors That Affect British Pound Futures

There are many factors, both fundamental and technical factors, that can affect the British pound futures, but here, we will only discuss the fundamental factors which include economic reports and political events.

Economic reports: The United Kingdom reports several economic data each week, month, and quarter, and each of those data can cause varying degrees of volatility in the British pound futures market. These are the reports with the highest impact on the market:

  • Monetary policy reports, including interest rates and policy statements
  • Inflation-focused reports, such as the consumer price index and the producers’ price index
  • Growth reports, such as the GDP, manufacturing PMI, services PMI, and retail sales
  • Reports about the balance of payments, such as current account and trade balance reports
  • Sentiment reports, including the Gfk Consumer Confidence and the Nationwide Consumer Confidence

Political events: Important political events, such as elections and referendums, do have significant effects on the British pound futures. For example, the Brexit vote caused the pound to slump to a 31-year low.

Conclusion

The British pound futures is offered on the CME Group and the ICE and their electronic trading platforms. It provides traders with the opportunity to speculate on the GBP exchange rate and offers investors a way to hedge their exchange rate-dependent obligations, such as swaps.

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